Dollar General (DG – Research Report), the Consumer Cyclical sector company, was revisited by a Wall Street analyst yesterday. Analyst Robert Ohmes from Bank of America Securities reiterated a Sell rating on the stock and has a $118.00 price target.
Robert Ohmes has given his Sell rating due to a combination of factors affecting Dollar General’s financial performance and market positioning. The adjusted earnings per share (EPS) for the fourth quarter, although slightly above expectations, were not sufficient to offset the broader challenges. A noticeable decline in gross margins year-over-year was attributed to factors such as increased shrink, markdowns, and unfavorable product mix, which were only partly mitigated by reductions in other costs like last-in, first-out (LIFO) accounting and transportation. Additionally, selling, general and administrative expenses (SG&A) as a percentage of sales saw a significant increase, driven mainly by higher retail labor costs, which highlights underlying cost management issues.
Looking ahead, Ohmes anticipates that the first half of the fiscal year will continue to present hurdles, leading to a lowered EPS forecast. These challenges include the annualization of retail labor investments, a return to pre-pandemic levels of promotions, and persistent shrink issues. Although some improvement is expected in the second half of the year due to Dollar General’s “Back to Basics” initiatives, the timing for margin recovery remains uncertain. Ohmes also points out the ongoing risks to the company’s long-term performance, such as potential sales pressure from reduced store growth and SKU rationalization, increased labor costs, heightened competition, particularly from Walmart, and the necessity for additional promotions to manage inventory levels. These factors contribute to the rationale behind the Sell rating and a price objective that is significantly below the current market price.
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Dollar General (DG) Company Description:
Based in Tennessee and founded in 1939, Dollar General Corp. is a discount retailer, which provides various merchandise products including consumable items, seasonal items, home products and apparel, in the southern, southwestern, Midwestern, and eastern United States.
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